IRS Agent Reports Corrupt Tech-Company Audit

The whistleblower alerted the FBI and SEC about a tax case settled to keep a business and its top executives from paying $51 million in taxes.Craig Schneider, CFO.com | USAugust 11, 2004

The independence and integrity of the Internal Revenue Service is being questioned after one of the agency's own reportedly found a corrupt audit tied to a technology company.

Remy Welling, a senior auditor for the IRS with 22 years’ experience, claims a technology company's tax case was settled without an audit, according to a New York Times article. Welling, instead of being given tax returns to examine, was apparently asked to sign off on the secret deal, which she said was worked out by other IRS officials, allowing the San Jose, Calif.-based semiconductor maker Micrel Inc. and its top executives to avoid paying $51 million in additional taxes, by her calculations.

Micrel's agreement with the IRS also reportedly required the agency to cooperate with the company in keeping its shareholders uninformed on some basic terms of its stock-option plan, the paper reported. Welling claims that the plan enriched the four top executives by as much as $20 million in total.

Welling, who has brought her complaint to the Federal Bureau of Investigations and the Securities and Exchange Commission, risks criminal prosecution for going public with information about the audit and said she is about to lose her job because of the disclosure. In an interview with The Times, she said, "Someone has to tell the public about what is going on inside the IRS."

IRS officials declined to comment on Welling's case or the agreement with Micrel Inc., citing privacy concerns. "It is essential that we maintain the independence and integrity of the audit process," Mark Everson, the IRS commissioner, told the paper. "The IRS has long-established standards and safeguards designed to ensure that there is no undue influence over decisions by our enforcement personnel."

Welling's details of the case, however, show that conflicts of interest through a "revolving door" persist. According to The Times, the stock-option issue was first broached in 2002 by former IRS national director of appeals James Casimir, who then represented Micrel as a partner at PricewaterhouseCoopers.

Casmir did not first disclose his representation because all audits are handled, by law, in secret. He pleaded with the agency to give the company and its employees relief from taxes owed and additional interest in connection with its stock plan that violated the tax law for years, according to the paper.

Micrel's stock plan reportedly let employees select the lowest price for the stock within 30 days, which violates the law that requires employers to set the strike price no lower than the value of the stock on the day the grant is made. IRS lawyers consented to the tax relief and later passed the file along to Welling to audit the company's accounting for an acquisition.

Welling protested that the closing agreement, which would have settled the stock-option matter, could be considered only after Micrel's full tax returns had been examined, according to the paper,. There were no tax returns in the file and Welling reportedly was told that "they were not available."

"An auditor cannot sign off on an agreement closing an audit before the audit," she said in the story. "That's just not legal, not proper." When complaints up the ladder within the agency went unheeded, Welling went to the FBI. She reportedly wrote that her superior, Ron Yokoo, told her that she had no choice but to sign off on the Micrel closing agreement and "give Jim Casimir what he wants. He won't stop at anything."

Asked by The Times about Welling's contentions that he wielded undue influence inside the agency on behalf of Micrel, Casimir reportedly laughed and said, "I wish it were so." Micrel told The Times that it would not comment on what it considered confidential matters.